US Dollar Monthly Exchange Rates Forecast - November 2024

Two of the most tumultuous weeks of the year are behind us. The USD surged following Donald Trump’s victory in the US presidential elections, bolstered by expectations of a ‘red wave’ in Congress. Tariffs and fiscal stimulus are likely to serve as the primary transmission mechanisms for global FX markets under Trump’s administration. The USD could remain well-supported in the early stages of his presidency, as FX investors prepare for more assertive trade policies and aggressive fiscal measures. These policies could increase the odds of a soft landing for the US economy while contributing to stickier inflation. Such dynamics may prompt the Federal Reserve to adopt a less dovish stance, further enhancing the USD’s rate appeal. Persistent foreign capital inflows into USD-denominated assets could also maintain upward pressure on the currency, positioning it as a favoured choice in the evolving global landscape.

With Trump securing victory in the US presidential election, the Canadian dollar faces increased headwinds. USD/CAD has already been trading near 1.40, and a Trump win reinforces the likelihood of a break above this key level. While the broad USD strength continues, CAD has shown relative resilience, benefiting from the perception that Canada remains largely shielded from Trump’s aggressive tariff policies due to the USMCA agreement. However, with the Bank of Canada pursuing a highly accommodative monetary policy—recently cutting rates by 50 basis points and leaving the door open for further reductions—the 2-year US-Canada swap spread has surged to record highs of 95 basis points. Historically, this spread level has coincided with significant USD/CAD rallies, and Trump’s victory could drive the pair closer to its 2016 highs around 1.4500. Moreover, Trump’s policies boosting the US equities and economic growth might indirectly support Canada, but the immediate outlook suggests continued CAD weakness against a strengthening USD.

The euro has stumbled sharply following Donald Trump’s re-election, dropping from $1.0935 to below $1.0665 and edging closer to its mid-April low of $1.06. With the US-Germany two-year yield spread surging past 200 basis points, the euro remains under intense pressure against a resurgent US dollar. October saw the euro shed three cents, andin early November another ’s 1.2% dip marked its worst performance in over a month. A cocktail of challenges—including slowing Eurozone growth, uncertainty over ECB policy direction, and the renewed political uncertainty tied to Trump’s win—has left the euro vulnerable. As these headwinds persist, the outlook suggests that further losses may be on the horizon for the shared currency.

On November 7, the Bank of England (BoE) lowered its policy rate by 25 basis points to 4.75%, marking the second cut in the current easing cycle. The decision, supported by a majority of Monetary Policy Committee members, reflects the BoE's preference for a gradual approach to easing, contrasting with more aggressive cuts seen in other major central banks. This cautious strategy is influenced by the recent UK budget, which includes significant spending plans expected to impact inflation and growth. Meanwhile, the British pound has declined for six consecutive weeks, reaching near post-election lows of around $1.2835, with further depreciation likely if it breaks below $1.2800. Resistance levels are now anticipated in the $1.3000-$1.3050 range, potentially limiting any rebound in the currency.

The USD/JPY surged in October, driven by strong US economic data, rising Treasury yields, and speculation about monetary policy and political developments. The dollar gained strength as robust retail sales and employment data exceeded expectations, while the yen weakened amid cautious comments from Japanese officials and political uncertainty following the LDP-Komeito coalition's election losses. While the pair briefly dipped on BOJ Governor Ueda's hawkish remarks, it climbed back as market sentiment favoured the dollar. With Trump securing victory in the US election, the focus now shifts to how US policies and Japan's political landscape will shape further movements, with resistance seen around 155 and key support near 150.

Donald Trump’s sweeping victory in the US elections, along with GOP dominance, is seen as a clear mandate, fueling Trump trades that are expected to drive the USD/CNY exchange rate higher toward the year-end. Looking ahead to 2025, the market's reaction to his policies will hinge on the specifics of tariff announcements, as seen during the first trade war, when markets waited for concrete policy details before fully adjusting. With Trump likely to use tariffs strategically in negotiations, a series of announcements could begin as early as January 2025, potentially leading to a 10% depreciation of the Chinese yuan from current levels.

The Indian rupee has fallen to a historic low, driven by expectations that upcoming policies in the United States could strengthen the dollar in the months ahead. Anticipated measures such as tax cuts and deregulation are projected to boost US economic growth, encouraging investors to favour the dollar over other currencies. Additionally, concerns over potential tariffs have added to the pressure on the rupee. To manage sharp fluctuations, the Reserve Bank of India is expected to continue intervening in the currency market, as reflected in the rupee's relatively stable volatility compared to other regional currencies.

The Australian dollar fell sharply driven by US dollar strength following Trump’s re-election on November 5 and uncertainty surrounding potential fiscal stimulus in China, Australia’s largest trading partner. This pullback wiped out much of the gains from September, leaving the AUD as the third worst-performing G10 currency for the month. Despite robust domestic fundamentals, including a stronger-than-expected labor market with 64.1k jobs added in September and resilient inflation data, global factors have weighed heavily on the currency. If Trump follows through on plans for significant tariffs on China, global growth expectations could falter, likely dragging AUD/USD down another 4% to test the 2023 lows near 0.6300.

In October, the New Zealand dollar (NZD) was the weakest performer among G10 currencies, driven by domestic challenges. The Reserve Bank of New Zealand (RBNZ) implemented a 50 basis point rate cut, signalling increased concerns about the effects of previous monetary tightening. Despite being one of the most aggressive central banks in earlier tightening cycles, the RBNZ’s recent actions reflect a pivot toward supporting growth as economic pressures mount. The labour market is showing clear signs of weakness, with job numbers stagnating for two consecutive months after four months of declines and rising in only three of the last twelve months. Consumer confidence, which had been improving, also slipped in October, further underscoring the headwinds facing the economy and adding to the NZD's struggles.

The Mexican peso has come under renewed pressure following Donald Trump’s re-election on November 5, as the US dollar strengthened broadly across the FX market. Mexico’s position as the top exporter of goods to the US, recently surpassing China, makes it particularly vulnerable to Trump’s aggressive trade tariff plans. Adding to the strain, Trump has threatened tariffs on electric vehicle (EV) imports from Mexico, citing concerns over China using Mexico as a backdoor into the US market. With these trade risks mounting and market sentiment turning cautious, further depreciation of the peso seems all but inevitable.